<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from _________________ to ________________
Commission file number 1-9087.
SUMMA RX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1535372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2940 FM 3028, Mineral Wells, Texas 76067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (940) 325-0771
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.01 par value Over the Counter
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
<PAGE> 2
As of July 14, 2000, the estimated aggregate market price of the
Registrant's voting stock held by non-affiliates was $590,000.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of July 14, 2000, the Registrant had 3,145,838 shares of its common
stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits from (i) Registration Statement No. 33-00297-FW on
Form S-18 as filed with the Commission on December 9, 1985, (ii) Registration
Statement No. 33-9475 on Form S-8 as filed with the Commission on October 9,
1986, (iii) Annual Report on Form 10-K for the year ended April 30, 1989 and
(iv) Quarterly Report on Form 10-Q dated September 15, 1988 are incorporated by
reference into Part IV of this Report.
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PART I
ITEM 1. BUSINESS
CORPORATE IDENTITY STATEMENT
Summa Rx Laboratories, Inc. ("Summa") was formed as a Texas sole
proprietorship in 1972 and was incorporated in the State of Texas in October
1976, as Dews Laboratories, Inc. In November 1987, Dews was merged into a
Delaware corporation and was renamed Summa Rx Laboratories, Inc.
Summa is engaged in the business of manufacturing and marketing
pharmaceuticals and dietary supplements for sale under contract to its
customers. Its executive offices and manufacturing facilities are located at
2940 FM 3028, Mineral Wells, Texas 76067, approximately 45 miles west of the
Dallas/Fort Worth metropolitan area.
DESCRIPTION OF PHARMACEUTICAL PRODUCTS AND SERVICES
Summa's manufacturing facility is registered with the Food and Drug
Administration (the "FDA") to manufacture drugs and medical devices. Present
operations consist primarily of the manufacturing and marketing of products that
fall into two categories - dietary supplements and pharmaceuticals (prescription
and over the counter ["OTC"] drugs). All of its manufacturing and sales are now
done on a contract basis according to its customers' specifications, including
content and labeling design.
A major portion of Summa's sales consists of dietary supplements.
Pursuant to the new Dietary Supplement Health and Educational Act of 1994, the
term dietary supplements includes vitamins, minerals, amino acids, and herbs or
other botanicals. Summa manufactures dietary supplements for a variety of
customers including multi-level marketers and direct sales companies.
In addition, Summa, manufactures prescription and nonprescription
pharmaceuticals such as analgesics, decongestants, and mucolytic expectorants.
Summa's production and billing procedures are based on an order,
production and shipment/payment basis so as to minimize finished goods
inventory, order backlog and delays in payment of receivables. As of July 14,
2000, Summa had pending orders that totaled $401,810. These orders are scheduled
for delivery during the next six weeks.
Distribution of products from Summa's manufacturing facility is by
commercial freight carriers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The sources of the raw materials for Summa's operations are from
independent commercial suppliers through-out the United States, and are
available from many other suppliers, other than those utilized by Summa. There
is adequate availability of the raw materials required for Summa's manufacturing
operations.
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PATENTS AND TRADEMARKS
Although most of Summa's formulas are not subject to patent protection,
Summa has in the past, and will in the future, attempt to retain those formulas
in the form of trade secrets. Summa believes that improvement of existing
products, reliance upon trade secrets, and unpatented proprietary know-how and
development of new products are generally as important as patent protection in
establishing and maintaining a competitive market position.
Summa has filed an application for a patent entitled "Dietary
Supplement for the Promotion of Healthy Hair and Pigment Restoration" with the
U. S. Patent Office.
In addition Summa has filed applications for trademarks for Gray Away,
Zinc Care, Zinc Plus, Cold Clear, and ColdCare.
As part of the license agreement to manufacture zinc lozenges, Summa
acquired the exclusive right to the use of ColdCure(TM).
SEASONALITY
Dietary supplements traditionally experience declines in sales during
the summer months; however, Summa has attempted to restructure its marketing
efforts and product line to minimize the impact of seasonality on its sales.
DEPENDENCE ON CUSTOMERS' BUSINESS
For the year ended April 30, 2000, two customers accounted for 25% and
25% of Summa's sales, respectively. The loss of any of these customers could
have an adverse effect on the company. During the fiscal year ended April 30,
1999, three customers accounted for 20%, 14%, and 13% of sales.
COMPETITION
The manufacture and sale of dietary supplements, prescription and OTC
pharmaceuticals is highly competitive with respect to price and products offered
and is influenced by consumer preference. Summa does not attempt to compete with
large pharmaceutical and nutritional companies, except in its dietary supplement
programs, but attempts to supplement the products offered by such companies by
offering similar products in market areas not penetrated by the larger
companies. There are numerous smaller companies whose products overlap many of
the products produced by Summa. Many of those companies are of comparable size
or larger and provide the majority of the competition in Summa's market.
PRODUCT RESEARCH AND DEVELOPMENT
Summa intends to direct its research and development activities toward
(1) additional dietary supplement products and (2) product lines to be
manufactured under contract for customers, particularly pharmaceuticals.
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GOVERNMENTAL REGULATION
Summa's products and production and manufacturing facility are subject
to governmental inspection and regulation by the FDA and the State of Texas
Department of Health. The FDA establishes standards relative to product safety,
efficacy, and labeling, which apply to the manufacture, clinical testing, and
marketing of pharmaceuticals and medical devices in the United States. FDA
regulations prohibit the general sale of such products until they have been
determined to be safe and effective. Summa's manufacturing facility is
registered with the FDA to manufacture drugs and medical devices. However, none
of the products manufactured by Summa require FDA pre-approval.
The procedure for seeking and obtaining FDA approval for a new
pharmaceutical or medical device can involve many steps, including animal
testing to determine the safety, efficacy, and potential toxicity prior to
testing on humans, and clinical testing on humans prior to marketing. The
process of obtaining FDA new drug approval generally takes a substantial period
of time and involves the expenditure of a large amount of resources.
Investigational drugs used in domestic clinical trials are subject to regulation
relating to production methods, advertising, price, and profit.
Summa is not subject to any environmental regulations involving the
discharge of any matter into the environment at either of its facilities.
Consequently, the costs and effects of compliance with governmental
environmental laws are non-existent.
Summa has not entered into any contracts or subcontracts with the
federal government.
EMPLOYEES
At April 30, 2000, Summa had 40 full-time employees.
Production/manufacturing accounted for 35 of such employees. The balance of
Summa's employees is engaged in finance, sales and administration.
ITEM 2. PROPERTIES
Summa owns its executive offices and its storage and manufacturing
facilities which consist of a two story building that contains 28,000 square
feet located on approximately six acres, five miles southeast of Mineral Wells,
Texas. In the opinion of management the properties are adequately covered by
insurance.
Summa expanded its manufacturing, operating and storage facilities in
August 1997. Summa believes the expansion created sufficient manufacturing and
storage facilities for its present needs.
Summa does not invest any of its assets in real estate, real estate
mortgages or other securities.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of Summa's Common Stock, $0.01 par value (the "Common Stock"),
were not publicly traded prior to February 27, 1986. Following that date, the
Common Stock has been traded in the over-the-counter market under the symbol
DEWS until January 1988 when the symbol was changed to SMRX. Summa's Common
Stock does not have an established public trading market.
The following table sets forth the high and low sales price (bid,
quote) for the Common Stock for the period shown during the last two years ended
April 30, 1999 and 2000.
<TABLE>
<CAPTION>
Quotations (1)
-----------------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
July 31, 1998 3/4 3/4
October 31, 1998 3/4 3/4
January 31, 1999 3/4 3/4
April 30, 1999 3/4 3/4
July 31, 1999 1/2 1/2
October 31, 1999 1/2 1/2
January 31, 2000 1/2 1/2
April 30, 2000 1/2 1/2
</TABLE>
(1) Actual high and low bid quotations.
At April 30, 2000, Summa had approximately 150 listed stockholders,
excluding stockholders whose shares are held in a fiduciary capacity by banks,
brokerage houses and nominees. Based on information received from such banks,
brokers, and nominees, Summa believes that it has approximately 575
stockholders.
Summa has neither declared nor paid dividends on its Common Stock in
the two most recent fiscal years. Summa has agreed not to pay dividends until
all of the principal amount of and interest due on its $380,000 issue of 1998
Ten Percent (10%) Secured Subordinated Callable Notes due May 15, 2003 (the "10%
Notes") are fully paid and discharged. After that event has occurred, Summa
intends to retain earnings for use in the expansion of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY
On December 7, 1999 a former customer of Summa paid Summa the sum of
$2,478,151 pursuant to the provisions of an Award of Arbitrator entered on
November 1, 1999. The award is presented net of expenses of $548,130 and income
taxes of $342,183. Summa brought the action in arbitration seeking damages based
upon the customer's claim of termination of a manufacturing and sales agreement
entered into by it and Summa on July 11, 1997.
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At April 30, 2000 Summa was generating sufficient cash flow to meet
daily operating requirements.
On December 27, 1999 Summa paid all of the principal and interest due
under a promissory note owed to Carol Petrie, a holder of 233,356 shares of
Summa's Common Stock.
In July 1999, the holders of the 12% Notes agreed to extend the due
date of those notes until July 10, 2001. On December 27, 1999 and January 15,
2000 Summa called those notes and paid all of the principal and interest then
due to the holders of those notes.
In May 1998 Summa's issued its 10% Notes in the principal amount of
$380,000. A part of the funds was used to purchase of additional equipment to
upgrade Summa's production capacity. Summa presently holds the balance of such
funds in an interest bearing account.
RESULTS OF OPERATIONS
Sales for fiscal 2000 increased 55% when compared to fiscal 1999. Sales
for fiscal 1999 decreased 14% when compared to sales for fiscal 1998. The
increase in sales in fiscal 2000 is attributed to the increase of orders
received from Summa's two largest customers. Summa changed its manufacturing
philosophy in 1991 to actively seek to do contract manufacturing for others.
Since that change in philosophy, Summa has actively sought customers for whom it
is able to manufacture powders, tablets or capsules and whose needs and volumes
are not sufficient to interest large manufacturers.
Cost of goods sold, as a percent of sales, were approximately 76%, and
70% for fiscal years 2000 and 1999, respectively. The major components of cost
of goods sold for the respective fiscal years were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------
2000 1999
------------------------- -------------------------
Amount Percent Amount Percent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Material $1,953,938 44.0 $1,001,344 35.0
Labor 810,307 18.2 559,620 19.6
Overhead 617,140 13.8 429,197 15.0
---------- ---------- ---------- ----------
$3,381,385 76.0 $1,990,161 69.6
========== ========== ========== ==========
</TABLE>
Material costs, as a percent of sales, increased 9% when comparing
fiscal 2000 and fiscal 1999. The increase in costs in fiscal 1999 was due
primarily to increased costs of material. Management was able to control
material costs in fiscal 2000 by actively seeking better pricing and purchasing
in larger quantities, due to the ability of two customers to forecast and place
blanket purchase orders for several months production.
Selling and marketing expenses, as a percent of sales, decreased 6% in
fiscal 2000 when compared to fiscal 1999. Selling and marketing expenses, as a
percent of sales, for fiscal years 2000 and 1999 were approximately 7% and 13%
respectively. The major components of selling and marketing expense for the
respective fiscal years were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------
2000 1999
------------------------- -------------------------
Amount Percent Amount Percent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Salaries and commissions $ 267,770 6.0 $ 326,201 11.4
Royalties 268 0.0 15,818 0.5
Travel 4,596 0.1 5,863 0.2
Advertising 3,140 0.1 4,837 0.2
Other 30,583 0.7 25,533 0.9
---------- ---------- ---------- ----------
$ 306,357 6.9 $ 378,252 13.2
========== ========== ========== ==========
</TABLE>
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General and administrative expenses, as a percent of sales, for fiscal
2000 and 1999 were approximately 11% and 19%. Legal expenses decreased due to
litigation being completed over the validity of the licensing agreement for zinc
lozenges. The increase in other components was primarily due to upgrading the
accounting system computer. The major components of general and administrative
expenses for the respective fiscal years were as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------
2000 1999
------------------------- -------------------------
Amount Percent Amount Percent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Salaries $ 177,585 4.0 $ 152,102 5.3
Legal and Professional 49,623 1.1 209,238 7.3
Insurance 51,000 1.1 47,070 1.6
Franchise Taxes 126,040 2.9 900 0.0
Other 200,712 4.5 126,969 4.5
---------- ---------- ---------- ----------
$ 604,960 13.6 $ 536,279 18.7
========== ========== ========== ==========
</TABLE>
On December 7, 1999 a former customer of Summa paid Summa the sum of
$2,478,151 pursuant to the provisions of an Award of Arbitrator entered on
November 1, 1999. The award is presented net of expenses of $548,130 and income
taxes of $342,183. Summa brought the action in arbitration seeking damages based
upon the customer's claim of termination of a manufacturing and sales agreement
entered into by it and Summa on July 11, 1997.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in a separate
section of this report. See Index of Financial Statements on Page F-1 of this
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
BOARD OF DIRECTORS
The following table sets forth the names and ages of all of the
Directors of Summa as of July 14, 2000. Members of the Board of Directors are
elected to serve a term of one year or until their successors are elected
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and qualified. No arrangement or understanding exists between any of the
Directors and any other persons pursuant to which the Directors were selected.
<TABLE>
<CAPTION>
Name Since Age Position
---- ----- --- --------
<S> <C> <C> <C>
Jerry A. Nelson 1987 64 Chairman of the Board, President
and Chief Executive Officer
Stanley K. Slutzky 1995 62 Chairman of the Compensation
Committee, Member of Audit
Committee and Director,
Jeffrey P. Meador, CPA 2000 48 Chairman of the Audit Committee,
Member of Compensation
Committee and Director
</TABLE>
The following sets forth pertinent information regarding each of the Directors.
Jerry A. Nelson - Elected as a Director of the Company in April 1987,
and as Chairman of the Board, President and Chief Executive Officer in July
1987. He previously had served as a consultant to the company from July 1985.
From June 1982 until June 1987, Mr. Nelson was President of Nelson & Associates,
a consulting firm providing manufacturing and product development services to
various companies. From 1972 until 1982, Mr. Nelson was employed by Alcon
Laboratories, serving in various management positions at different divisions of
Alcon.
Stanley K. Slutzky - Elected as a Director of the Company in October
1995, Mr. Slutzky is the senior partner of the law firm of Slutzky, Wolfe and
Bailey of Atlanta, Georgia. Mr. Slutzky has been in the practice of law in
Georgia since 1962 and specializes in the practice of business law, commercial
real estate and estate planning.
Jeffrey P. Meador, CPA - Mr. Meador was appointed as a member of the
Board of Directors in May 2000. Mr. Meador has been in public accounting since
1976 having worked with Ernst & Ernst, Cooper and Lybrand and since 1985 with
Jeff Meador & Associates in Austin, Texas. His practice is primarily in tax
matters with significant experience in real estate, technology, compensation,
and health care. He is also a certified valuation analyst.
EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of
the executive officers of Summa as of July 16, 2000. Such persons administer the
day-to-day operations of Summa and are appointed by Summa's Board of Directors
to serve until the subsequent annual meeting of the Board of Directors or until
they resign or are replaced. No arrangement or understanding exists between any
of the executive officers and any other persons pursuant to which the executive
officers were selected.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jerry A. Nelson 64 President and Chief Executive Officer
Pauline G. Lee 40 Chief Financial Officer and
Corporate Secretary
</TABLE>
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Pauline G. Lee - Mrs. Lee joined Summa in May 1989 as an in-house
accountant. She was elected by the Board as the Corporate Secretary and Chief
Accounting Officer on July 8, 1993. Mrs. Lee was elected to the position of
Chief Financial Officer on December 3, 1998. Prior to May 1989 she was employed
as an accountant for a group of automobile dealerships for two years, and was in
public accounting for the six years prior.
A description of Mr. Nelson's background is set forth above under
"Board of Directors."
ITEM 10. EXECUTIVE COMPENSATION
During the fiscal year ended April 30, 2000, Mr. Nelson, Summa's
President and CEO received cash compensation of $157,582. No other Summa
executive officer received cash compensation in excess of $100,000. All of
Summa's executive officers (two persons) received a total aggregate compensation
of approximately $ 208,917 during such period.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) CERTAIN BENEFICIAL OWNERS
The following table set forth information regarding certain beneficial
owners of Summa's Common Stock at July 14, 2000 who own more than five percent
(5%) of the Common Stock. Each stockholder has sole voting and investment power
with respect to the shares set forth opposite their name, unless otherwise
indicated.
<TABLE>
<CAPTION>
Number of Shares
Owned as of
Name and Address of Beneficial Owners July 14, 2000 Percent
------------------------------------- ---------------- -------
<S> <C> <C>
Carol M. Petrie
772 Potato Patch
Vail, Colorado 81657 233,356 7.42
Lawrence L. Black, Black & Co.
1 SW Columbia Street
Portland, Oregon 97258 223,695 7.11
Jerome Klawitter
3 Humbolt Lane
Austin, Texas 78746 306,442 9.74
Shirley K. Hunter Trustee,
Le Damier Trust
1000 Bayou Oaks Lane
Lake Charles, Louisiana 70605 434,055 13.80
Edwin K. Hunter Trustee, Chambers
Medical Foundation and Tellurogenic
1807 Lake Street
Lake Charles, Louisiana 70601 374,064 9.03
----------- ------
TOTAL OWNERSHIP 1,571,612 47.10
=========== ======
</TABLE>
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(B) MANAGEMENT OWNERSHIP
The following table set forth information regarding management
ownership of Summa's Common Stock at July 14, 2000. Mr. Nelson has sole voting
and investment power with respect to his shares.
<TABLE>
<CAPTION>
Number of Shares
Owned as of
Name of Management Owners July 14, 2000 Percent
------------------------- ---------------- --------
<S> <C> <C>
Jerry A. Nelson 180,371 5.73
Stanley K. Slutzky Trustee, Gabriel Trust 331,914 10.55
-------- ------
All Officers and Directors
as a Group (5 persons) 512,285 16.28
======= ======
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997 Summa combined two promissory notes due to Carol Petrie, the
holder of 233,356 shares of the Common Stock, into a single promissory note. The
principal amount of the new note included all past due principal and interest of
the two pre-existing notes through the date of the new note. The new note was
due on December 15, 1999, bore interest at the rate of 12% per annum and was
secured by all of Summa's executive offices and manufacturing facilities.
On December 27, 1999 Summa paid Ms. Petrie all of the principal and
interest due under the new note and she executed releases of the liens securing
the note.
Also, on December 27, 1999 and January 15, 2000 Summa paid all of the
principal and interest due under the 12% Notes to the holders of those notes.
Stanley K. Slutzky, Edwin K. Hunter and Carol Petrie, who are listed as being
"Certain Beneficial and Management Shareholders" were holders of some of the 12%
Notes.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements:
See Index to Financial Statements on page F-1 for a list of all
financial statements and schedules filed as part of this report.
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2. Financial Statement Schedules required to be filed by Item 8
of this Form 10-K, and by paragraph (d) below:
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required or are inapplicable and, therefore, have been omitted.
3. Exhibits filed herewith as required by Item 601 of Regulation
S-K: Item (10) - Material Contracts.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this Report.
(c) Exhibits required by Item 601 of Regulation S-K:
Item (2) - Plan of acquisition, reorganization, arrangement,
liquidation, or succession:
(A) Articles of Merger of Dews Laboratories, Inc., a Texas
corporation, and Summa Rx Laboratories, Inc., a Delaware corporation,
filed with the Commission as Exhibit 3.3 to Annual Report on Form 10-K
for the year ended April 30, 1988 are incorporated herein by reference.
(B) Certificate of Agreement of Merger of Dews Laboratories,
Inc., a Texas corporation, and Summa Rx Laboratories, Inc., a Delaware
corporation, filed with the Commission as Exhibit 3.2 to Annual Report
on Form 10-K for the year ended April 30, 1988 are incorporated herein
by reference.
Item (3) (i) - Articles of Incorporation:
Certificate of Incorporation of Summa Rx Laboratories, Inc., a
Delaware corporation, filed with the Commission as Exhibit 3.1 to
Annual Report on Form 10-K for the year ended April 30, 1988 are
incorporated herein by reference.
Item (3) (ii) - By-Laws:
By-Laws of Summa Rx Laboratories, Inc., a Delaware
corporation, filed with the Commission as Exhibit 3.4 to Annual Report
on Form 10-K for the year ended April 30, 1989 are incorporated herein
by reference.
Item (4) - Instruments defining the rights of security holders,
including indentures:
Proxy Statement for Special Meeting of Stockholders held on
July 15, 1988 at which Summa stockholders approved and adopted a
proposal to authorize 2,000,000 shares of Preferred Stock, $0.10 par
value, and reported under Item 2 of Quarterly Report on Form 10-Q as
filed with the Commission and dated September 15, 1988 is incorporated
herein by reference.
Item (10) - Material Contracts - See Item (a)(3), above.
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Item (23) - Consents of Experts and Counsel - Consents of Counsel are
incorporated herein by reference filed as part of Registration Statement No.
33-00297-FW on Form S-18 as filed with the Commission on December 9, 1985, and
Registration Statement No. 33-9475 on Form S-8 as filed with the Commission on
October 9, 1986.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Summa Rx Laboratories, Inc.
<TABLE>
<S> <C>
By: /s/ Jerry A. Nelson Date: July 31, 2000
-----------------------------------------------
JERRY A. NELSON, President and
Chief Executive Officer
By: /s/ Pauline G. Lee Date: July 31, 2000
-----------------------------------------------
PAULINE G. LEE, Principal Financial
Officer and Principal Accounting Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By: /s/ Jerry A. Nelson Date: July 31, 2000
-----------------------------------------------
JERRY A. NELSON, Chairman of
the Board of Directors
By: /s/ Stanley K. Slutzky Date: July 31, 2000
-----------------------------------------------
STANLEY K. SLUTZKY, Director
By: /s/ Jeffrey P. Meador Date: July 31, 2000
-----------------------------------------------
JEFFREY P. MEADOR, Director
</TABLE>
<PAGE> 15
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
NOT APPLICABLE.
<PAGE> 16
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SUMMA RX LABORATORIES, INC.
APRIL 30, 2000 AND 1999
<PAGE> 17
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Balance Sheets - April 30, 2000 and 1999 F-3
Statements of Operations - Years ended April 30, 2000 and 1999 F-5
Statement of Changes in Stockholders' Equity - Years ended
April 30, 2000 and 1999 F-6
Statements of Cash Flows - Years ended April 30, 2000 and 1999 F-7
NOTES TO FINANCIAL STATEMENTS F-8
</TABLE>
F-1
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Summa Rx Laboratories, Inc.
We have audited the accompanying balance sheets of Summa Rx Laboratories, Inc.
as of April 30, 2000 and 1999, and the related statements of operations, changes
in stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Summa Rx Laboratories, Inc. as
of April 30, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
GRANT THORNTON LLP
Dallas, Texas
June 19, 2000
F-2
<PAGE> 19
SUMMA RX LABORATORIES, INC.
BALANCE SHEETS
April 30,
<TABLE>
<CAPTION>
ASSETS 2000 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,352,751 $ 268,620
Trade accounts receivable, less allowance for doubtful
accounts of $124,569 in 2000 and $176,322 in 1999 554,673 181,099
Inventories
Raw materials 180,802 171,650
Work-in-progress 50,604 20,185
Finished goods 31,513 3,693
---------- ----------
262,919 195,528
Other current assets 80,376 79,555
---------- ----------
TOTAL CURRENT ASSETS 2,250,719 724,802
PROPERTY, PLANT AND EQUIPMENT
Furniture, fixtures and equipment 1,636,313 1,252,713
Buildings and improvements 383,859 383,859
---------- ----------
2,020,172 1,636,572
Less accumulated depreciation 741,463 584,680
---------- ----------
1,278,709 1,051,892
Land 5,798 5,798
---------- ----------
1,284,507 1,057,690
OTHER ASSETS 712 2,644
---------- ----------
$3,535,938 $1,785,136
========== ==========
</TABLE>
F-3
<PAGE> 20
SUMMA RX LABORATORIES, INC.
BALANCE SHEETS - CONTINUED
April 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of notes payable to related parties $ -- $ 104,390
Accounts payable - trade 308,678 251,612
Accrued expenses 311,045 122,913
Customer deposits 285,628 186,634
----------- -----------
TOTAL CURRENT LIABILITIES 905,351 665,549
LONG-TERM NOTES PAYABLE TO RELATED PARTIES 380,000 570,000
STOCKHOLDERS' EQUITY
12% cumulative convertible preferred stock - authorized,
2,000,000 shares of $.10 par value -- --
Common stock - authorized, 10,000,000 shares of $.01
par value; issued and outstanding, 3,145,838 shares 31,458 31,458
Additional paid-in capital 3,219,379 3,219,379
Accumulated deficit (1,000,250) (2,701,250)
----------- -----------
2,250,587 549,587
----------- -----------
$ 3,535,938 $ 1,785,136
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 21
SUMMA RX LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years ended April 30,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 4,445,461 $ 2,859,576
Cost of goods sold 3,381,385 1,990,161
----------- -----------
GROSS PROFIT 1,064,076 869,415
Selling, general and administrative expenses 911,317 914,531
----------- -----------
OPERATING INCOME (LOSS) 152,759 (45,116)
Other income (expense)
Interest expense - related parties (62,913) (73,834)
Other 23,316 (43,228)
----------- -----------
(39,597) (117,062)
----------- -----------
NET EARNINGS (LOSS)
BEFORE EXTRAORDINARY ITEM 113,162 (162,178)
Extraordinary item - gain
Net settlement from arbitration, less $342,183 of
income taxes 1,587,838 --
----------- -----------
EARNINGS (LOSS) ALLOCABLE TO COMMON
STOCKHOLDERS $ 1,701,000 $ (162,178)
=========== ===========
Earnings (loss) per common share - basic and diluted
Earnings before extraordinary item $ .04 $ (.05)
Extraordinary item - gain .50 --
----------- -----------
Net earnings (loss) $ .54 $ (.05)
=========== ===========
Weighted average common shares outstanding 3,145,838 3,145,838
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 22
SUMMA RX LABORATORIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Additional Total
--------------------------- paid-in Accumulated stockholders'
Shares Amount capital deficit equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at May 1, 1998 3,145,838 $ 31,458 $ 3,219,379 $(2,539,072) $ 711,765
Net loss -- -- -- (162,178) (162,178)
----------- ----------- ----------- ----------- -----------
Balances at April 30, 1999 3,145,838 31,458 3,219,379 (2,701,250) 549,587
Net earnings -- -- -- 1,701,000 1,701,000
----------- ----------- ----------- ----------- -----------
Balances at April 30, 2000 3,145,838 $ 31,458 $ 3,219,379 $(1,000,250) $ 2,250,587
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 23
SUMMA RX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 1,701,000 $ (162,178)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation 158,715 99,273
Write-down of equipment -- 59,855
Changes in operating assets and liabilities
Accounts receivable - trade (373,574) (22,659)
Inventories (67,391) (62,896)
Other current assets (821) 4,910
Accounts payable - trade 57,066 (1,522)
Other accrued liabilities 188,132 16,659
Customer deposits 98,994 102,912
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,762,121 34,354
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (383,600) (180,961)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (294,390) --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,084,131 (146,607)
Cash and cash equivalents at beginning of year 268,620 415,227
----------- -----------
Cash and cash equivalents at end of year $ 1,352,751 $ 268,620
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 60,728 $ 72,571
Income taxes $ 344,000 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 24
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
Nature of Operations
Summa Rx Laboratories, Inc. (Summa or the Company) is engaged in the
business of manufacturing and marketing pharmaceuticals and dietary
supplements. Summa's manufacturing facility is registered with the U.S. Food
and Drug Administration (the "FDA") to manufacture drugs and medical
devices. Summa primarily manufactures and markets products which fall into
two categories: dietary supplements and pharmaceuticals. The pharmaceutical
manufactured by Summa consist of prescription and nonprescription
pharmaceuticals such as antihistamines, analgesics, and mucolytic
expectorants.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the assets,
which for buildings and improvements is 10-30 years, and furniture, fixtures
and equipment is 5 - 20 years.
Customer Deposits
The Company requires cash deposits on certain customer orders. The deposits
are recorded as a current liability and recognized as revenue when the
product is shipped.
Revenue Recognition
Revenue is recognized from sales when a product is shipped.
F-8
<PAGE> 25
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
Earnings Per Share
The Company computes basic earnings (loss) per common share based on the
weighted average number of common shares outstanding. Diluted earnings per
share is computed based on the weighted average number of common shares
outstanding plus the number of additional common shares that would have been
outstanding if dilutive potential common shares had been issued. All
potential common shares were anti-dilutive in 2000 and 1999. Accordingly,
singular earnings (loss) per share amounts have been presented in the
accompanying financial statements. In 2000 and 1999, options and warrants of
1,416,664 and 1,286,664 shares of common stock, respectively, were excluded
from diluted earnings per share because they were anti-dilutive.
Financial Instruments
The carrying amounts for cash, accounts receivable, accounts payable and
notes payable approximate fair value because of the short term nature of
these items.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Options
The Company measures stock-based compensation cost as the excess of the
quoted market price of the Company's common stock over the amount the
employee must pay for the stock. The Company's policy is to generally grant
stock options at fair market value at the date of grant.
F-9
<PAGE> 26
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - LONG-TERM NOTES PAYABLE TO RELATED PARTIES
Long-term notes payable to stockholder's consist of the following:
<TABLE>
<CAPTION>
April 30,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
Note payable to a stockholder, interest at 12% per annum, payable
monthly, in either cash or shares of the Company's stock (at a rate of
$.25 per share) at the Company's option, secured by
all property, due and paid December 1999 $ -- 104,390
Notes payable to stockholders, interest at 12% per annum, payable
quarterly, due July 2001 and paid December 1999
and subordinate to the 12% note payable to a stockholder -- 190,000
Notes payable to stockholders, interest at 10% per annum,
payable quarterly, secured by all property, due May 2003 380,000 380,000
-------- --------
380,000 674,390
Less current maturities -- 104,390
-------- --------
$380,000 $570,000
======== ========
</TABLE>
Aggregate annual principal maturities of long-term debt at April 30, 2000
are as follows:
<TABLE>
<S> <C>
2001 $ --
2002 --
2003 --
2004 380,000
--------
$380,000
========
</TABLE>
In 2000, the Company granted warrants to purchase 190,000 shares of its
common stock for $.50 per share, in connection with a one-year extension of
the $190,000 note payable, which was subsequently paid in December of 1999.
In 1998, the Company granted warrants to purchase 100,000 shares of its
common stock for $.50 per share, in connection with a one-year extension on
the $104,390 note payable.
The Company granted warrants to purchase 190,000 shares of its common stock
for $.50 per share in 1997 in connection with the issuance of the $190,000
note payable.
F-10
<PAGE> 27
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - LONG-TERM NOTES PAYABLE TO RELATED PARTIES - CONTINUED
In connection with the issuance of the $380,000 notes payable in 1998, the
Company granted warrants to purchase 506,664 shares of its common stock for
$.75 per share. The notes are callable, at the option of the Company, upon
thirty days notice.
The value of the aforementioned warrants was not significant.
NOTE C - INCOME TAXES
The following reconciles the provision for income taxes in the statements of
operations to the expected provision at statutory Federal rate:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Expected provision (benefit) at Federal rate $ 38,475 $ (55,141)
Change in valuation allowance -- 52,000
Other 7,574 3,141
Utilization of net operating loss (46,049) --
--------- ---------
$ -- $ --
========= =========
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 110,000 $ 442,000
Other -- 23,000
--------- ---------
110,000 465,000
Less valuation allowance (42,000) (397,000)
--------- ---------
$ 68,000 $ 68,000
========= =========
</TABLE>
The Company used a net operating loss carryforward of approximately,
$1,030,000, during the year of which approximately $113,000 was allocated to
operations and $920,000 allocated to extraordinary gain, net of the reversal
of prior year valuation allowance of $355,000. The Company has approximately
$330,000 of net operating loss carry forwards that are restricted to use of
$66,000 per year and expire in 2006.
F-11
<PAGE> 28
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - STOCKHOLDERS' EQUITY
The Company has a nonqualified stock option plan under which directors may
be granted options to purchase the Company's common stock. The Company has
reserved 150,000 shares of stock for issuance under the plan. The exercise
price of options granted under the plan cannot be less than the fair market
value of the stock on the date of grant. The following summarizes option
activity under the nonqualified stock option plan for each of the two years
in the period ended April 30, 2000:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
-------- --------
<S> <C> <C>
Options outstanding and exercisable at May 1, 1998 140,000 $ .50
Granted 40,000 .50
Cancelled (40,000) .50
-------- --------
Options outstanding and exercisable at April 30, 1999 140,000 .50
Cancelled (40,000) .50
-------- --------
Options outstanding and exercisable at April 30, 2000 100,000 $ .50
======== ========
Weighted average fair value per share of
options granted during 1999 $ .13
Weighted average remaining contractual life 4.9 years
</TABLE>
F-12
<PAGE> 29
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - STOCKHOLDERS' EQUITY - CONTINUED
In 1998, the Company adopted a qualified stock option plan under which key
employees may be granted options to purchase the Company's common stock. The
Company has reserved 300,000 shares of stock for issuance under the plan.
The exercise price of options granted under the plan cannot be less than the
fair market value of the stock on the date of grant. The following
summarizes option activity under the qualified stock option plan for the two
years ended April 30, 2000:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
-------- --------
<S> <C> <C>
Options outstanding and exercisable at May 1, 1998 80,000 $ .50
Granted 60,000 .50
-------- --------
Options outstanding and exercisable at April 30, 1999 140,000 .50
========
Cancelled (20,000) .50
-------- --------
Options outstanding and exercisable at April 30, 2000 120,000 $ .50
======== ========
Weighted average fair value per share of
options granted during 1999 $ .17
========
Weighted average remaining contractual life 3.8 years
</TABLE>
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation", the Company measures
stock-based compensation cost as the excess of the quoted market price of
the Company's common stock at the grant date over the amount the employee
must pay for the stock. SFAS 123 requires disclosure of pro forma net
earnings (loss) and pro forma net income (loss) per share as if the fair
value based method had been applied in measuring compensation cost for
stock-based awards granted after 1995. There were no stock-based awards
prior to 1997.
F-13
<PAGE> 30
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - STOCKHOLDERS' EQUITY - CONTINUED
Reported and pro forma net earnings (loss) and net earnings (loss) per share
amounts are set forth below:
<TABLE>
<CAPTION>
Year ended April 30,
--------------------------------------
2000 1999
------------- ---------------
<S> <C> <C>
Net earnings (loss) allocable to common stockholders
As reported $ 1,810,047 $ (170,323)
Pro forma $ 1,810,047 $ (185,570)
Net earnings (loss) per share
As reported $ .58 $ (.05)
Pro forma $ .58 $ (.06)
</TABLE>
The fair value of these options was estimated at the date of grant using the
minimum value option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6 percent; no dividend yield; and
expected lives ranging from 5 to 10 years. Due to the lack of an active
market in the Company's common stock, the minimum value option pricing model
was used to value options granted.
At various times, the Company has issued warrants to purchase common stock
to certain employees, directors, creditors and stockholders. The warrants
are exercisable within one year of the date of grant. The following
summarizes warrant activity for each of the two years ended April 30, 2000:
<TABLE>
<CAPTION>
Warrant
weighted
Fiscal average
Number year of price
of shares expiration per share
----------- ---------- ---------
<S> <C> <C> <C>
Warrants outstanding at May 1, 1998 1,006,664 2001-2003 $ .63
Granted -- --
---------- ---------
Warrants outstanding at April 30, 1999 1,006,664 2001-2003 .63
Granted 190,000 2006 .50
---------- ---------
Warrants outstanding at April 30, 2000 1,196,664 2001-2006 $ .61
========== =========
</TABLE>
F-14
<PAGE> 31
SUMMA RX LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - EXTRAORDINARY ITEM
On December 7, 1999 a former customer of Summa paid Summa the sum of
$2,478,151 pursuant to the provisions of an Award of Arbitrator entered on
November 1, 1999. The award is presented net of expenses of $548,130 and
income taxes of $342,183. Summa brought the action in arbitration seeking
damages based upon the customer's claim of termination of a manufacturing
and sales agreement entered into by it and Summa on July 11, 1997.
NOTE F - MAJOR CUSTOMERS
A significant portion of the Company's net sales have been derived from
major customers as follows:
Two customers in 2000 accounted for 25% and 25% of sales of the Company,
respectively. Three customers in 1999 accounted for 20%, 14%, and 13% of
sales of the Company, respectively.
Although management believes its relations with these customers are
currently good, it is reasonably possible that the Company could lose one or
more of these customers which could result in a material adverse effect on
the Company's financial position and results of operations.
NOTE G - EMPLOYEE BENEFIT PLAN
In 1998 the Company adopted an employee benefit plan which provides for tax
deferred contributions from employees, together with certain matching
contributions from the Company. The Plan qualifies under section 401 (k) of
the Internal Revenue Code. Under the Plan, employees are permitted to
contribute up to 15% of their gross compensation into the retirement plan
and the Company will match 50% of each employee's contribution up to a
maximum rate of 6%. Benefit plan expense was approximately $7,900 and $7,000
in 2000 and 1999, respectively.
F-15
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C> <C>
23 -- Consent of Independent Certified Public Accountants
27 -- Financial Data Schedule
</TABLE>
